Fallacy of Reciprocal Tariffs
It should be obvious by now that the Donald’s north star is “winning” and nothing else, and that he keeps score by whatever metric is handy. On trade, the scorecard is simply the bilateral merchandise trade balance of whichever country comes to mind at any given moment, and, crucially, whether the balance figure has a plus or minus sign in front of it.
That’s been the sum and substance of Trump’s trade philosophy ever since he started opionating about the issue in the national media in the 1980s. Yet even though “winning” has its virtues in sports, tiddlywinks and many other aspects of life, the bilateral trade balance with each of the 193 countries which buy or sell goods of some type or another in the USA is about the closest thing to meaningless statistical noise as you can find.
For instance, by the Donald’s standard the US appears to be beating the shit out of the 20 small countries listed below. In 2023 US exports to this group were 10X larger than imports from them, meaning that America was “winning” big time: The combined trade surplus of +$4.1 billion represented fully 83% of the two-way turnover with these countries.
As is evident in the chart below, however, these “losers” on the Trumpian game board had almost no exports to the US. That’s because apparently the American markets for seashells (Micronesia), molasses (Belize), coconuts (Samoa), root crops (Tonga), rum (Barbados) etc. are just not that large.
At the same time, there is also a bit of hidden cheating in the bulging US export stats. To wit, some of these countries appear to have a strong affinity for “buy America” because, well, they are mandated to make purchases exclusively from the US owing to stipulations of the USAID and food for peace programs!
That is, it was US taxpayers who actually bought some of these “exports” in behalf of the 20 small fry listed below.
In any event, the combined $4.1 billion US surplus with these nations amounts to just 0.1% of the $5.1 trillion of total US trade turnover with the world and barely 0.01% of GDP. So that’s a “win”, but one that is most surely irrelevant to most everything.
U.S. Merchandise Trade with 20 Small Countries, 2023 ($millions)
Then again, here is the box score for America’s largest 20 trading partners. The total turnover was $4.0 trillion in 2023, representing 77% of America’s two-way trade volume with the world. Yet, in Trumpian terms, this group is chock-a-bloc with American trading losses.
In fact, the US had very large trade deficits with 13 of its 20 largest trading partners, with each generating negative balances of $45 billion or greater. These major deficit countries included the EU-27, Mexico, Canada, China, Japan, South Korea, Vietnam, Taiwan and India, and when you add in four more countries with which the US had significant trade deficits in 2023, the total score was decidedly lopsided.
To wit, the 13 large deficit partners sent $2.47 trillion of imports to the US, while buying only $1.27 trillion of exports from America. Consequently, the trade deficit with these 13 nations was $1.20 trillion or fully 32% of the $3.74 trillion of total trade turnover.
By contrast, the seven largest countries with which the US had surpluses didn’t amount to that much in the scheme of things. US imports from these countries totaled $88 billion while US exports to them posted at $161 billion.
So that brought about a $73 billion surplus or “win”. Yet total trade turnover with these surplus countries amounted to just 4.8% of the US worldwide trade turnover in 2023, while the surplus amounted to just 0.3% of GDP.
Importantly, the “all other” nations category shown below, which represents about 170 smaller countries, also generated a net surplus on the US trade account of $87 billion, representing 11.3% of total trade turnover of $2.16 trillion with these countries.
US Trade With Top 20 Trading Partners and Worldwide In 2023 (billions)
Needless to say, the data in the two tables above raises some fundamental doubt about the Donald’s theory that America’s giant trade deficits are owing to a world market which is crawling with foreign cheaters and unfair tariffs. It turns out that in one and the same world, the US has giant deficits with essentially a baker’s dozen of countries (13) and a modest net surplus with the balance of 180 or so countries with which American companies do business either buying or selling merchandise goods.
In a word, the 13 big deficit countries ($1.2 trillion) accounted for 72% of total US trade turnover (imports + exports). The rest of the world, by contrast, accounted for $1.44 trillion or 28% of US worldwide turnover but generated a $150 billion surplus or 10% of total turnover.
So the question recurs: Are all the Bad Guys that Donald Trump rails about mainly in the 13 biggies listed above, while the balance of the 180 countries of the world are generally fair traders, as measured by the US surpluses (on net) with them? Or is the story considerably more complicated?
We will go with the more complicated route, but do so by dividing the question in two:
- Is the alleged cheating mainly a matter of tariff barriers that could be countered, at least in theory, on a tit-for-tat basis as per Trump’s pending April 2nd reciprocal tariffs?
- Or does the problem mainly lie outside of the tariff arena–either in NTBs (nontariff barriers) abroad or counterproductive economic and monetary policies at home?
What we can show below regarding the first question is that whatever the degree of “unfair” trade that may exist in the world market today, it is not owing to tariff barriers. The Donald’s rants about 350% dairy tariffs in Canada or 10% automotive tariffs in Europe or 50% motorcycle tariffs in India, are simply a case of “gotcha” argumentation. In fact, these horror stories either do not actually exist or are largely irrelevant to the big picture.
In this context we should also note that “unfair” foreign tariffs would largely impact US exports by pricing US goods out of home markets, whereas unfair NTBs such as lavish government subsidies, tax credits and regulatory protections of domestic exporters would tend to swell US imports from foreign countries.
To be sure, foreign export enhancing NTB’s could in theory be compensated for by quantifying their value to foreign exporters and adding that to the Trumpian reciprocal tariff, as some in the administration have suggested. Yet attempting to quantify and defend the incorporation of NTBs in the reciprocal tariff levies would be a process nightmare of epic proportions, even as it would fill the Swamp with massive new opportunities for corrupt lobbying and grift.
For present purposes, however, we can start with the tariff practices of the 13 bad guys in the table above. In 2023 the US had exceedingly large deficits with two of the biggest, Mexico and Canada, where the combined trade deficit was a staggering $321 billion or 22% of the $1.45 trillion of total trade turnover with the two countries on America’s border.
Then again, the case that these unbalanced outcomes were NOT caused by tariff barriers is straight-forward and totally undebatable. To wit, owing to the Donald’s own USMCA (nee NAFTA) not one dime of tariff was levied by Canada or Mexico on the $564 billion of US exports to these countries.
So, yes, there was a huge trade imbalance, but tarif
Article from LewRockwell
LewRockwell.com is a libertarian website that publishes articles, essays, and blog posts advocating for minimal government, free markets, and individual liberty. The site was founded by Lew Rockwell, an American libertarian political commentator, activist, and former congressional staffer. The website often features content that is critical of mainstream politics, state intervention, and foreign policy, among other topics. It is a platform frequently used to disseminate Austrian economics, a school of economic thought that is popular among some libertarians.
